The Gathering Storm

Volume 131 No. 46 - Friday, May 18,
2007

Negotiators have yet to finalize a Doha round global trade agreement,
but one thing they have agreed on is to end all agricultural export subsidies
by 2013.

This would mean the end of European cheese subsidies by 2013, building
over the next six years into a powerful storm driven by winds of change.
Subsidies, repeated as a magic explanation for European dominance of
high margin specialty cheese will no longer be an excuse to hide behind.

Meanwhile, the US cheese industry is a sleeping giant of complacency, habit and fear. To tap into the opportunities hidden within this gathering storm, we need to wake it up, or risk discovering soon enough that much of our most profitable retail space, as well as much of our manufacturing base, is owned by others.

Like a young man who realizes that he, and not his date, is the real blind date, we need the humility to admit that our choices led us to where we are, not subsidies.

As you may have noticed, this month Toyota Motor Company surpassed General
Motors as the largest car company in the world. GM blamed subsidies and
dumping, in spite of the often quoted fact that Toyota is more profitable
with many less employees. They wouldn’t or couldn’t change and now they
are number two.

People who buy Toyota feel they make better cars. In my years in retail,
people bought Cambozola or St. Andre because they felt they were better
cheeses.

Commodity markets are wonderful to be part of when entering virgin territory. Sales volumes shoot up, dollar profits are fat, people are happy with food at low prices. Things change when the market is
saturated and competition fierce.

I am not against commodity production. Industrial production of cheese has been an incredible blessing, improving the nutrition of great numbers of people on a mass scale. But why does everyone have to make only commodity cheese?

As a strategic thinker, there is a hole in commodity logic that needs to
be addressed before betting the farm on it. It thrives on economy of scale.
The bigger you get, the lower margin you can live with.

But no matter how big you build, someone always builds bigger. Everyone
ends up fighting over a thinner and thinner slice of the pie. As costs
go up a razor thin margin evaporates. At some point, the little guy you
put out of business by growing big is you.

This one sided fixation on commodity has had us so consumed that we did
not even notice we were losing the most profitable retail shelf space and
the most affluent consumers. Go to your local supermarket and check on
the shelves, heck, go to a Whole Foods and check on the shelf.

The vast majority of specialty cheeses will be European. Thirty years ago, they came with guns blazing; we barely noticed, never putting up a fight.

As we watch older facilities fail, and be bought by European companies
who turn them around, almost overnight, making better cheese more profitably,
we have to ask, what do they know that we don’t?

Consider this: Cheese consumption in Europe is flat, but continuing to
grow here, and most of that in specialty cheese. To offset losing subsidies,
their best strategy is to open facilities here.

In case you haven’t noticed, they have, and are. Our European colleagues
are welcome, but it would be nice if a few of us were left around to greet
them.

To meet this challenge, we need to diversify. We need to overcome our resistance to developing higher value brands along with commodity ones, and take flexibility to the bank. I did a study for a large producer that clearly showed diverting just one half of 1 percent of production to a higher margin specialty cheese dramatically improved profitability.

Large and small need to work together for the common good. When we say
French, we don’t think of the tons of grating cheese, we think of Brie,
or Camembert. But they sell tons of grating cheese to us as well. It took
years of cooperation and strategic marketing to achieve this.

We need to stand up for our right to know. Try and find out how much cheese
is imported. Brie is not under license and not tracked, neither is Goat
or Sheep cheese.

Our government commodity codes are a mess and of little use in understanding
what is entering our own market. Whose idea was it to include Taleggio
with Reggiano? Tons of imported frozen curd ends up in cheeses packaged
here, and they aren’t even labeled as such. Someone needs to talk to Washington
and get their help.

We need more resources put into really good specialty cheese. (I do not count flavored jack or a Mozzarella as a specialty cheese here.) We are saddled with a great deal of equipment that is not suitable for making better quality cheese.

We need to become more efficient.

In the final analysis, we are trapped by short-term thinking and need to
choose long-term. If we continue as is, we will find ourselves, like our
car-making brothers, scratching our head at the sound of our overseas competitors
leaving us in the dust in our own country.
Now is our chance. A storm is gathering. •

Dan Strongin is managing partner and owner of Edible Solutions,
a consulting company focused on helping companies making great food
make a profit. He will be writing a monthly column in Cheese Reporter.
Strongin can be reached via phone at (510) 224-0493, or via e-mail at dan@danstrongin.com

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